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Legal Standard in ERISA LTD Benefits

Abuse of Discretion and Arbitrary and Capricious - Litigating a Claim in Federal Court
 
In ERISA LTD cases, the abuse of discretion and the arbitrary and capricious standards are typically used interchangeably (although the arbitrary and capricious standard has more often been applied to challenging agency action).
 
While these standards are the least demanding, they are not however “without teeth.” McDonald v. Western-Southern Life Ins. Co., 347 F.3d, 161, 169, 172 (6thCir. 2003) (While an abuse of discretion standard may be the least demanding form of judicial review, it is not “without teeth” and not an impossible standard for Plaintiff to meet. Even under a deferential review, a termination decision will not be upheld when there is an absence of reasoning in the record to support it.) 
 
Federal courts do not review an administrator's decision solely for “rubber stamping those decisions.” An administrator acts arbitrarily and capriciously if there is no “reasonable basis for the [administrator's] decision, based on facts as known to the administrator at the time the decision was made.” Lyncker v. Johnson & Johnson Pension Committee, 505 F. Suppl. 2d 1303, 1312 (M.D. Fla. 2006).  
 
Accordingly, an ERISA insurer must show by substantial evidence that it had a reasonable basis for denying or terminating disability benefitsSandoval v. Aetna Life and Cas. Ins. Co., 967 F 2d 377, 382 (10thCir. 1992). A lack of substantial evidence indicates that an insurer's benefit denial decision is an abuse of discretion or is arbitrary and capricious. 
 
What is Substantial Evidence?
 
“Substantial evidence” is evidence that a “reasonable mind could accept as sufficient to support a conclusion.” Substantial evidence is “more than a scintilla, of course, yet less than a preponderance.” 

The substantiality of the evidence is to be evaluated against the “backdrop of the administrative record as a whole.”Adamson v. Unum Life Ins. Co. of America, 455 F.3d 1209, 1212 (10thCir. 2006) (“Substantial evidence” is of the sort that a reasonable mind would accept as sufficient to support a conclusion. A mere scintilla of evidence in support of the nonmoving party's position is insufficient to survive a motion for summary judgment, and a lack of substantial evidence indicates an arbitrary and capricious decision.)

Conclusion

A plan administrator's decision to deny or terminate disability benefits must meet the substantial evidence test, or it will be struck down as an abuse of discretion or as arbitrary and capricious.  

ERISA law is complicated. At Law Med, we are ERISA knowledgeable and experienced. 

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